by Bill O’Grady, Thomas Wash, and Patrick Fearon-Hernandez, CFA

[Posted: 9:30 AM EDT] | PDF

Good morning. U.S. equity futures are signaling a higher open. Today’s report begins with U.S. economic and policy news followed by our roundup of China-related stores. International news is next, and we conclude with our pandemic coverage.

Economics and policy:

• Congressional leaders agreed to a short-term spending bill that would fund government agencies through February 18. The bill passed through both the House and the Senate on Thursday and is expected to be signed by President Biden on Friday.
• Federal Reserve Governor Randy Quarles gave his final speech on Thursday. In it, he warned that the new facilities put in place for the pandemic established a dangerous precedent that could have ramifications for the economy. His comments reflect growing angst among those in the establishment who would like a return to the pre-pandemic norm concerning fiscal and monetary policy.
• The dispute over the Russian troop buildup along the Ukraine border swelled on Thursday. Secretary of State Antony Blinken warned Russia that if it pursued confrontation with Ukraine, there would be “serious consequences.” The vague threat was in response to U.S. concerns that the troop buildup was a prelude to an inevitable Russian invasion of Ukraine. Russian Foreign Affairs Minister Sergei Lavrov responded by stating that continued western military support of Ukraine may lead to retaliation from Moscow. Although Russia has dismissed the chances of an eventual invasion, Ukraine and the U.S. appear to be unconvinced. On Friday, Ukraine Defense Minister Oleksii Reznikov warned that his country was prepared to fight back if Russia were to launch an attack.
• The U.S. plans to lead efforts to limit the export of surveillance technologies to authoritarian governments. The initiative is expected to be launched at the Summit for Democracy event that will take place on December 9.
• Cleveland Federal Reserve President Loretta Mester warned that the Omicron variant could exacerbate inflation. Assuming that this new variant is more dangerous than the delta virus, she claimed there could be more supply chain shortages and higher quit rates. Her warning comes amid growing fears that the variant could slow the global recovery. However, it is worth noting that although there is evidence suggesting the latest variant is more contagious than Delta; it is also believed to have less severe symptoms.

China:

• Chinese ride-hailing app Didi (DIDI, $7.80) has begun the process of delisting from the New York Stock exchange and is expected to pursue a listing in Hong Kong. Recently, Chinese regulators announced a crackdown on companies looking to list overseas. In response to the reports, tech shares listed on the Hong Kong Exchange briefly sank to record lows as investor sentiment dipped in response to increased government scrutiny of Chinese tech firms.
• China is expected to raise prices for long-term coal contracts following a supply scare earlier this year. The increase in coal prices could add to the inflationary pressures faced by manufacturers, who have struggled to secure needed raw materials throughout the year.
• A Chinese think tank claimed that the U.S. military flew a record number of spy planes over the South China Sea. The report comes among rising tensions between Beijing and Washington.
• The People’s Bank of China announced it will decrease the amount of cash that banks need to hold in their reserves. The change is designed to boost bank lending to small businesses.

International news: 

• OPEC plus agreed to proceed with its planned production hike in January. The group will add 400,000 barrels a day to the global market next month but said that it could reverse course at any moment if demand falls due to the Omicron variant.
• Austrian Chancellor Sebastian Kurz resigned on Thursday. He is currently under investigation for suspected corruption. Top officials within the ruling conservative party have picked Karl Nehammer to be the new chancellor.
• The EU slapped several entities in Belarus with sanctions on Thursday due to their involvement in the growing migrant crisis along the country’s border. The EU hit Belarus’s state airline, sovereign debt, and other companies and individuals. It has threatened more sanctions if the country’s president Alexander Lukashenko does not stop the flow of immigrants along its border. The EU has accused Belarus of manufacturing a migrant crisis.
• German Chancellor Olaf Scholz has chosen a new head of the German Bundesbank. The new appointee, Joachim Nagel, had previously worked for the Bank for International Settlements (BIS). Germany is dealing with rising inflation, which hit a thirty-year high of 6.2% in October.  Little is known about his policy leanings, but given the country’s sensitivity to inflation, it is probable that he could push for a more hawkish monetary policy.

COVID-19:  The number of reported cases is 264,304,501 with 5,237,752 fatalities.  In the U.S., there are 48,832,268 confirmed cases with 785,912 deaths.  For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics.  The FT has also issued an economic tracker that looks across countries with high-frequency data on various factors.  The CDC reports that 578,263,565 doses of the vaccine have been distributed, with 464,445,580 doses injected.  The number receiving at least one dose is 234,269,053, the number of second doses is 197,838,728, and the number of the third dose, the highest level of immunity, is 42,973,222. The FT has a page on global vaccine distribution.

• A Pfizer executive stated he believes that the latest booster shot should be able to protect against the Omicron variant. The market responded well to the statement, although the executive mentioned he was merely speculating.
• The German government has imposed lockdowns for those who are unvaccinated.
• There are now five states that have detected Omicron cases. The outbreak may have been related to an anime convention in Manhattan. Cases of the new variant have now been identified in Minnesota, Hawaii, New York, Colorado, and California. At this time, it isn’t clear whether states will reimpose lockdowns.

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